German resi transactions see larger number, but smaller size

Despite evidence of a certain slowing in residential enthusiasm, the investment market for residential portfolio sales saw a 40% rise in the number of transactions in this year’s first half, along with a higher number of buyers, new figures show.

According to Karsten Nemecek, responsible for corporate finance valuation at advisor Savills, the residential portfolio market gained ground over already-buoyant 2012. “Significantly more deals were closed, and a considerably higher number of buyers appeared in the market than had been the case the previous year.”

While the first half of 2012 saw four transactions of over 20,000 residential units each, Savills report that only one transaction of this size took place during the first six months of 2013 - the sale of the GBW portfolio. By contrast, the number of transactions of over 1,000 residential units each almost doubled from nine to 16.

The number of transacted property developments also rose significantly. Throughout the first six months 13 developments were sold to an end-investor prior to completion at a volume of over €450 million. In H1 2012, only three property developments valued at €115 million had been sold. More than half of the developments transacted so far this year are located in Berlin, Düsseldorf and Munich.

Savills data shows that Berlin represented the focus of activity in this sector, not only in the number of property developments sold, but also in the total number of transacted residential units. As with last year, when at 17,500 the majority of residential units by far were sold in the German capital, with a 13% share of the market. Aside from Berlin, the cities of Munich and Dortmund with transaction levels of about 9,500 and 9,000 units respectively, as well as Duisburg with over 6,500 units, were the focus for investors – indicating a willingness of investors to start looking beyond the main cities.

German buyers continued to dominate the market activity in H1 2013. Domestic buyers’ share of volume amounted to 75% in 2012 and rose further in 2013 to over 80%. Most of the remaining 19% was attributable to investors from other European countries. The decreasing share of foreign investors is also a result of the further rise in values, says Savills. On average buyers paid €63,000 per unit in H1 2013 – a 20% rise year-on-year.

Matthias Pinks, responsible for research at Savills Germany, comments: “Rising prices inherently come along with dropping numbers of potential buyers, and particularly the more opportunistic Anglo-Saxon investors are seen more on the sell-side than on the buy-side in the current market cycle.”

With demand still strong, transaction activity is projected to remain buoyant throughout the second half of the year, with several portfolios of over €100 million now on the market. Due to a lack of GBW-sized deals, the investment volume is likely to come in slightly below the 2012 level; nonetheless the €10 billion mark is realistic for 2013, comparable to 2012’s €10.45 billion total, say the researchers.

“For the foreseeable future, a reasonable alternative to real estate is not really there for risk -averse investors, and German residential property will remain a good choice despite higher prices”, said Nemecek. Nonetheless, those planning to sell should consider the favourable current climate to lighten up their holdings, he suggested.